Real Estate Due Diligence

Real Estate Due Diligence in India

Purchasing or leasing property is saddled with legal risks which requires navigation of both legal, regulatory and commercial issues. Whether the property is being leased on a long term basis or being acquired through a merger and acquisition of an entity that holds the property or through a direct purchase of land, navigating legal issues become imperative.

If you plan to acquire any immovable property in any part of India, before completing the purchase you should conduct due diligence to ensure that the seller is the legal owner and has the right to sell / lease the property to you, and to check for any legal encumbrances or attachments. Checking for encumbrances across many states in India has been digitised though a large part of the country still remains accessible only through a manual check at the land records registry.

The Process

While real estate diligence is carried out for a wide variety of reasons based on the commercial objectives, broadly and in general we will seek to cover the generic elements interspersed below:

Before entering into any transaction, determine the ownership of the property in question is key and critical.

The rights of owner with reference to the ownership of the property may be absolute or limited. Ownership is seen as absolute when possession, enjoyment and disposal rights are vested in the owner without any restriction otherwise it is said to be limited. In order to execute a valid transfer, it is mandatory for such absolute right to dispose to be vested in transferor. For example in certain pieces of commercial land, permission of the local authority is a pre-requisite.

In the even the holder of the property is a company, a search at the Registrar of Companies to ensure that the property is not part of any mortgage/charge or hypothecation is necessary. Further, the previous three years' audited balance sheet along with P&L account of the owner/developer for the last three years should be scrutinized in order to ensure that, the company shall not be declared as insolvent or be wound up making it liable to its secured/unsecured creditors under the provisions of the Insolvency and Bankruptcy Code ("IBC").

Searches at the offices of the Sub-Registrar of land records/ assurances is required to have a comprehensive and complete record of all registered documents. Typically, we recommend that  for property purchases, the title deeds for the last 30 years are perused as per the provisions of the Indian Limitation Act, 1961 in order to ensure that, there are no claims affecting the property. Such a search will also reveal the charges created on the property.

In case of acquisition of land, a through diligence on the revenue records to extract Encumbrance Certificate, Khata/Patta Certificate and other records (which vary depending on the state) to ascertain and clarify the chain of title.

Based on land use, property may be divided into two categories i.e. agricultural and non-agricultural. Whilst undertaking title diligence it is necessary to identify the land use and determine whether it is agricultural land or non-agricultural land. If it is non- agricultural land then it should be further classified as residential or commercial, institutional, industrial based on the purpose for which diligence is being undertaken.

While perusing or undertaking diligence on ongoing developments or construction, additional steps may be needed to validate title. It must be verified to ensure that any construction being undertaken, is in adherence to the building plan and sanction plan passed by the appropriate municipal authorities.

In addition to this, builders are required to seek a number of permissions and approvals with regard to infrastructure and utility facilities like water, sewage, electricity, environment compliance etc. In case of 'ready to move-in' properties, one also needs to duly verify occupancy and completion certificates. Pursuant to the advent of the Real Estate (Regulation and Development) Act, 2016 ("RERA"), it is essential to ensure that, any property development project is registered under the RERA Authority within the State which would entail scrutinizing the RERA Registration Certificate.

Get An Estimate

We welcome the opportunity of serving you as your real estate counsel. Please feel welcome to reach us by providing details on the location of the property below. Our team will review the details and revert within 24 hours on an estimate and timeline to accomplish the diligence.

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